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UK firms will save money in the long run if they start planning IT changes now for the UK's entry into the European single currency. Daniel Thomas reports.

If Tony Blair gets his way, by this time next year the UK will be a referendum away from adopting the euro. Last year it committed to passing the five economic entry tests by June 2003.

Chancellor Gordon Brown reinforced this viewpoint last week when he pointedly described himself as "pro-European" during the annual Mansion House speech to the financial community.

However, six months on from the introduction of the single currency in the euro zone, many UK companies have not addressed the IT issues that adopting the euro will raise.

Last week, the British Chamber of Commerce (BCC) launched a euro guide for businesses, after warning that too many firms have not done enough practical preparation because of the continued uncertainty surrounding the UK's entry into European monetary union.

This inaction could have serious financial implications for UK businesses, industry bodies have warned.

The British Retail Consortium (BRC) recently said implementing the euro could cost UK retailers billions of pounds if they do not plan IT system changes early.

The BRC estimated that in first-wave countries the cost of implementing the euro - the bulk of which was IT-related - was 0.5% of retailers' annual sales. In the UK, this would be equivalent to more than £1bn.

UK retailers face significantly higher costs unless they heed the lessons of first-wave countries and make plans to handle the changeover, if and when it happens, said David Southwell, head of media at the BRC.

"The key lesson from the first wave countries was early planning," he said. "As soon as they were given a changeover date they began looking at systems and processes."

The BCC agreed that companies need to begin planning IT changes now.

"Small businesses are understandably reluctant to spend substantial amounts of money on preparing for the possibility of UK entry," said Antony Goldstone, president of the BCC. "However, there are steps businesses can and should take now that will save them money in long run and minimise any risks of not being ready in time, should the UK decide to join."

Focusing on IT is important because it underpins all departments and is likely to be the area where the most effort would be needed in the event of UK entry, the BCC said. However, this does not mean changeover should be treated as a standalone IT project, the guide warned.

"As businesses across the euro zone have discovered, planning for and making the transition to the euro must be handled as a business issue," the guide said. "Unfortunately, in the first year of the transition period the Y2K issue coincided with euro preparations, and, as a result, many businesses made the mistake of thinking the euro was 'just another IT project'."

In fact, when IT staff began to seek detailed specifications from business departments they realised preparing for the euro was quite different. Transition required a concerted effort from business departments working with colleagues in IT and suppliers.

There are a number of steps IT departments can take now to avoid similar mistakes. For businesses about to renew their software, the question to ask the supplier is, "Explain how, using your software, we would change the base currency of accounting from sterling to the euro?" the guide advised.

Other questions to ask are whether the software can handle the conversion of historical data and whether it can handle invoicing some customers in sterling and some in euros.

There are also actions that can be taken now to minimise future risks. For example, firms should ask if there are any existing users which were using the software before transition and then upgraded. Companies with IT outsourcing contracts, meanwhile, should investigate whether or not any changes to software, necessitated by UK entry, would be covered under the contract.

UK businesses cannot afford to have a short-term view when considering the issue of the euro, the guide warned. "If spending an extra 5% on a new system with in-built flexibility, could save you the substantial cost and effort of upgrading in three years time then you may consider this an appropriate step to make," it said.

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